What does it mean to have a negative balance on your credit card?

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Imagine this: You open up your credit card account to do your usual checkup on your balance, pending points or payment status. Since you already do this at least once a week (hint, hint), you’re used to seeing information about your amount owed and minimum payment due in addition to your balance. But this time, you see something unusual—your balance is less than zero. No, the world hasn’t turned upside-down.

When you have a negative balance on your credit card, the card company owes you money, and this typically happens when you pay more than you owe. So what happens when you overpay your credit card balance, and how does it affect your credit score?

We’re going to discuss what happens when you have a negative balance, how to address it and what this means for your overall financial health.

What does a negative balance on my credit card mean?

A negative balance means that your credit card company owes you money. When you overpay your credit card balance or have a negative balance, you’ll see a normal account balance, but it’ll be below zero. By now you’re used to paying your credit card company every month, but for once, they owe you money.

Why a negative credit card balance happens

The most common reason people have a negative credit card balance is that they stay on top of their payments and overpaid. For example, let’s say your outstanding balance was $80, but it’s usually around $100, so you pay $100 without thinking about it. On your next statement, you’ll see a $-20 balance on your credit card statement.

Aside from overpaying the outstanding balance on your credit card, here are some other reasons you may have a negative balance:

• Funds were returned to you, either from canceled purchases, returns or refunds
• Statement credits from rewards or cashback programs were applied to your account
• Fraudulent or mistaken transactions were removed from your account
• Fees were waived by the credit card company

What to do with a negative balance on a credit card

Some people are a little freaked out when they see there’s a negative balance on their card and are unsure what to do with the funds. Don’t worry, these funds are yours. Here are some ways you can take advantage of the negative balance:

• Use the funds: One way to get rid of a negative balance is to spend it. Use the funds on purchases to bring your balance back up above zero. Just try not to get too excited and overspend.
• Get a refund from your lender: If you’d rather not have to spend the money, or you feel at risk of overspending, you can submit a written request for a balance refund from your lender. Speak to your provider’s customer service department about getting a full refund—you can put this money in savings or apply it to a future credit card bill. Federal law requires that refunds be issued within seven days of a written request.
• Don’t do anything: If this all seems like too much effort, just leave it alone. Think of it as a savings account that’s going to help pay off future balances. As you use your credit card and owe on purchases, that negative balance will go back to normal once the funds are used. But, if your funds came from rewards, see if you have a certain amount of time to spend the funds.

Does a negative credit card balance affect my credit score?

Whenever you’re dealing with something involving your credit card, it’s beneficial to always ask, “How is this going to affect my credit score?” If you have a negative balance on your credit card, here are some items to take into consideration:

• It doesn’t affect your credit score: A negative balance neither hurts nor helps your credit score. Having a negative balance is seen by the credit bureaus in the same way as having no balance at all.
• Your credit card company is probably happy with you: When building credit, it’s important to be in good standing with your credit card company. Negative balances mean you have a low credit utilization ratio, and it may help with increasing your credit limit in the future.
• There’s an extra step when closing your credit card: Should you decide you want to close your credit card account, you’ll need to contact your credit card company to get your refund. It’s not a big deal, though, because you’ll need to contact them anyway to cancel your credit card safely.

What to do with an overpaid credit card balance

There’s no need to take any major actions when you overpay your credit card, but you have some options for what you can do next:

• As discussed, you can use the funds, get a refund or leave them alone.
• Keep an eye on your statements to avoid overpaying in the future. Those funds can be used to pay other bills.
• If you make a large overpayment, contact the card issuer because they may believe the overpayment is fraud and freeze or close your account.

Can I overpay my credit card to increase my limit?

Overpaying your credit card may give the illusion of having a higher credit limit, but it’s just that—an illusion. It won’t technically give you a credit limit increase; it will just allow you to pay more on the card for a certain amount of time. It may feel like you’re getting more money, when in reality, it’s still your money. To actually increase your credit limit, practice healthy spending habits and always pay your credit card on time and in full.

Stay on track with credit card monitoring

An overpayment means you’re in good standing with your credit card company, but it can also be a sign of fraud. If you didn’t overpay and don’t have any rewards, this may be due to fraud. Identity theft and fraud can hurt your credit score, and some people don’t realize it until it’s too late.

To avoid this happening to you, CreditRepair.com offers credit monitoring along with other services to make sure you maintain healthy credit. To learn more about our services, sign up for a free credit report evaluation today.